How to Evaluate and Choose a Debt Consolidation Company

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If you’re suffering under the weight of unmanageable debt, chances are you’ve looked into getting help from debt consolidation companies before.

However, it can be hard to evaluate which of these companies are helpful – and which ones might sink you further into a hole.

But when you understand what you need the most, what types of companies offer it, and the costs involved, it gets a lot easier. Here’s how to evaluate debt consolidation loan companies and figure out which one’s right for you.

What is debt consolidation?

It’s important to understand what debt consolidation is because this is a term that often gets misused.

At its core debt consolidation is the act of combining multiple debts into one. This can be done to help you manage payments, achieve more favorable terms, or both.

Technically, you don’t need to consider any debt consolidation companies. You just need a balance transfer credit card or a debt consolidation loan. And you can get both of these without the help of debt consolidation companies.

In a do it yourself situation like this (if you don’t opt for a balance transfer credit card), what you really need is a debt consolidation loan company. That’s a company that offers loans you can use to consolidate your debt.

The only reason someone might want to pay for a debt consolidation company rather than doing it on their own with a debt consolidation loan company is usually because they need help beyond consolidating debt.

Perhaps they can’t get approved for a debt consolidation loan or a balance transfer credit card. Or they can’t make payments at all and are hoping to get their debt settled. However, the companies that offer any of these services aren’t really doing debt consolidation, though.

5 ways to evaluate debt consolidation companies

No matter what kind of situation you’re in, there are a few things to think about before you move forward with any company advertising debt consolidation. Here are five things to consider before you get started.

1. Find out what you’re really getting

If you’re sure debt consolidation is what you need, beware of companies that claim to offer it. They may in fact only really offer credit counseling, debt settlement, or debt management.

Therefore, if you want to combine your debts into one loan to ease your payments and access more favorable terms, look into a balance transfer credit card. Or, a debt consolidation loan, which you can get through a debt consolidation loan company.

There are plenty of debt consolidation loan companies, such as AvantLending ClubProsper, and Upstart. All you have to do is apply for a loan that’s large enough to cover the debt you want to consolidate.

Then, if you’re approved, the new loan will pay off the old debt, and you only have to pay on the new loan moving forward.

2. Consider the length of the new loan

If you go with a debt consolidation loan company, consider the length of the new loan.

For example, if it has a repayment time that’s longer than what you’re currently in for, then you could end up paying more on your debt. That said, if this helps make your payments more manageable, that might not be such a bad thing.

Remember, always consider why you want debt consolidation. If it’s to pay off debt faster, then you don’t want a longer repayment period. But if it’s to pay less per month, then a longer repayment period might be the only way to achieve that. Unless, of course, you can get a lower interest rate.

3. Pay special attention to the interest rate

Speaking of interest rates, make sure the interest rate on your debt consolidation loan is lower than what you’re currently paying. If you can only get a higher interest rate, then your consolidated debt will cost you more.

Again, this may be okay if the new monthly payment would be lower than what you’re currently paying on all of your debts and that’s what you really need. But does it really make sense to pay more for your debt?

At the end of the day, you want to try to get the lowest rate possible. Check out our personal loan calculator to see how low rates can factor into your repayment plan. Or use the calculator below to see how interest rates impact the cost of credit card consolidation.

Credit Card Consolidation Calculator

Balance

Rate

Term

Monthly

Interest

Balance

Savings

BeforeAfter
Balance
Rate
Term
Monthly
Interest
Balance
Savings
By consolidating your credit cards with a total balance of at a weighted average interest rate of with a new loan at a interest rate, your new monthly payment would be . Your lifetime savings with your new loan would be compared to the total balance you’d pay on your credit cards.

Consolidate and pay off debt with personal loan rates as low as
% APR.

Total

Monthly

Interest

Before

After

$0

4. Calculate the fees

All new loans come with origination fees. Therefore, before signing on to a debt consolidation loan, calculate the cost of the fee to make sure it’s not unreasonably high.

And remember, this is the only fee you should ever pay on your loan (unless you make a late payment).

5. Read the reviews

This almost goes without saying, but before you sign on to any new credit, read reviews of the company.

The easiest way is to Google the company name with the word “reviews” behind it and see what shows up. If you see a lot of negative reviews, you should probably seek out a different company.

Some companies claim to offer consolidation but don’t

While there are many companies that call themselves debt consolidation companies, in reality, they often offer something else. Usually that something else is credit counseling, debt management, or debt settlement.

These offerings are ultimately geared towards people who aren’t qualified for debt consolidation loans due to poor credit. If that’s the position you’re in, here’s what you need to know about these three offerings.

1. Credit counseling

Credit counseling companies are typically non-profits that help you manage your money.

The Consumer Financial Protection Bureau (CFPB) describes credit counselors as, “certified and trained in areas of consumer credit, money and debt management, and budgeting.” These counselors will assess your financial situation and work with you to develop a plan geared toward getting your finances back on track.

Look out for fees attached to credit counseling, though, even from non-profits. Whether a credit counselor is for-profit or non-profit, they might try to charge you a fee upfront. And there might be other hidden fees as you use their service.

Don’t pay a fee upfront for a credit counselor. Additionally, don’t hesitate to ask them right away about any fees you might need to be aware of. Get it all in writing, so you’ll know exactly what you’re getting into.

Finally, understand that a credit counselor might refer you to a debt management plan. Remember, a debt management plan is not the same thing as debt consolidation.

If debt consolidation is what you want and you have a high enough credit score to be approved for a debt consolidation loan, then you don’t want or need a debt management plan.

2. Debt management

The CFPB describes a debt management plan as making “a single payment to the credit counselor each month or pay period and the credit counselor makes monthly payments to each of your creditors.”

Furthermore, a debt management plan can’t lower your overall debt:

Under debt management plans credit counselors do not negotiate any reduction in the amounts you owe – instead, they can lower your overall monthly payment […] by negotiating extensions of the periods over which you can repay a loan […] and by getting creditors to lower the interest rates.

If this is an option you’re considering, read these guidelines from the Federal Trade Commission to make sure it’s right for you.

3. Debt settlement

Debt settlement is a last resort and shouldn’t be considered unless you’re in default or on the verge of default.

A debt settlement company tries to negotiate with your lenders by withholding your payments. You pay them, they put the money in escrow, and they let your loans go into default. The idea is that your creditors might be more willing to negotiate when they realize any money at all is better than none.

However, this idea is also terrible for your credit score. The fact that the debt settlement company is withholding payments to negotiate with your lenders means that you’re going into default on your accounts. Since payment history makes up 35 percent of your credit score, going into default can very seriously hurt your score. If you’re considering this option, you might be safer declaring bankruptcy.

What’s more, if the settlement goes through, you might end up owing taxes on the settled amount. And, since settlement doesn’t always cover all types of debt, you could still find yourself in eventual bankruptcy.

If debt settlement is something you want to consider, read what the CFPB says to watch out for when evaluating debt settlement companies. And what they say about this option compared to credit counseling.

Using debt consolidation to your advantage

As frustrating as misleading advertisements from debt consolidation companies can be, this is still a great tool for improving your financial outlook. Being able to turn your debt payments into one, easy-to-remember payment and possibly even lowering your interest means you get peace of mind and possibly faster debt payoff.

And if you find that your finances are in need of more drastic help, don’t lose hope. Review your options and avoid any debt consolidation companies that want to charge large upfront fees or promise you quick and easy solutions.

Remember, it takes time to get your finances where you want them to be. It’s not always easy, but you can do it if you’re diligent. Also, be very careful who you work with.

And if you’re looking for information on handling your student loan debt, check out this article and consolidation and refinancing specifically for student loans.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderAPR RangeLoan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 6.990% APR to 14.865% APR (with AutoPay). Variable rates from 6.255% APR to 12.555% APR (with AutoPay). SoFi rate ranges are current as of September 1, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.255% APR assumes current index rate derived from the 1-month LIBOR of 2.08% plus 4.425% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

    To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.See Consumer Licenses.
  2. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  3. SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.
  4. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.

3 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 4.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 4.99% APR loan, a borrower will need excellent credit on a loan of $15,000 with a term of 24 months, and qualify for at least two of the following discounts: (1) add a co-borrower who has sufficient income; (2) use at least fifty percent of the loan proceeds to directly pay off existing debt; or (3) show proof of having at least forty-thousand dollars in retirement savings – contact FreedomPlus for further details.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

5 Important Disclosures for LendingPoint.

LendingPoint Disclosures

  • Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon LendingPoint’s final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. LendingPoint makes loan offers from $2,000 to $25,000, at rates ranging from a low of 15.49% APR to a high of 34.49% APR, with terms from 24 to 48 months. The loan offer(s) shown reflect a 28 day payment cycle which is being offered as a courtesy as many of our customers are paid on a biweekly schedule and thus this may better align the loan payment dates with your actual income receipt schedule.

6 Important Disclosures for LendingClub.

LendingClub Disclosures

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.


7 Important Disclosures for Earnest.

Earnest Disclosures

  1. Earnest does not lend in Alabama, Delaware, Kentucky, Nevada, or Rhode Island.

8 Important Disclosures for Avant.

Avant Disclosures

* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.

** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33


* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

7.73% – 29.99%$1,000 - $50,000Visit Upstart
6.26% – 14.87%1$5,000 - $100,000Visit SoFi
6.99% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%2$5,000 - $35,000Visit Payoff
4.99% – 29.99%3$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%4$5,000 - $50,000Visit Citizens
15.49% – 34.49%5$2,000 - $25,000Visit LendingPoint
6.16% – 35.89%6$1,000 - $40,000Visit LendingClub
6.99% – 18.24%7$5,000 - $75,000Visit Earnest
9.95% – 35.99%8$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.